exhitib105.htm


    EXHIBIT
10.5

     

    AMENDED
AND RESTATED

     

    GUARANTY

     

    OF

     

    CLARITY
COMMUNICATION SYSTEMS INC.

     

    ISCO INTERNATIONAL, INC., a
corporation organized and existing under the lawsof Delaware (“ISCO”) and the
corporate parent of CLARITY
COMMUNICATION SYSTEMS INC., a corporation organized and existing under
the laws of the State of Illinois (“Guarantor”), has
issued to MANCHESTER SECURITIES
CORPORATION, a corporation organized
under the laws of the State of New York (“Manchester”), and
ALEXANDER FINANCE LP, an
Illinois limited partnership (“Alexander”, and
together with Manchester, “Payees”):  (i)
5% Senior Secured Convertible Notes in the aggregate amount of $5,000,000 issued
on June 22, 2006 (the “June 2006 Notes”)
pursuant to  the Securities Purchase Agreement, dated as of the date
thereof, by and among ISCO and the Payees (the “2006 Securities Purchase
Agreement”), (ii) 7% Senior Secured Convertible Notes due August 1, 2009,
issued on June 26, 2007 in the aggregate principal amount of up to $10,200,000
(the “2007
Notes”), (iii) with respect to Alexander only, a 7% Senior Secured
Convertible Note due August 1, 2009, issued on January 3, 2008 in the aggregate
principal amount of up to $1,500,000 (the “January 2008 Note”),
(iv) 91⁄2% Secured Grid Notes due August 1, 2010, issued on May 29, 2008 in the
aggregate principal amount of up to $2,500,000 (the “May 2008 Notes”)
pursuant to the 2008 Loan Agreement, dated May 29, 2008, by and among ISCO and
the Payees (the “2008
Loan Agreement”), and in the case of (ii) and (iii) above pursuant to the
Third Amended and Restated Loan Agreement dated November 10, 2004, as amended
(the “2004 Loan
Agreement”) and (v) 9 1⁄2% Secured Convertible Notes due August 1, 2010,
issued on the date hereof, in the aggregate principal amount of up to $3,000,000
(the “August 2008
Convertible Notes”) pursuant to the August 2008 Loan Agreement dated as
of the date hereof by and among ISCO and the Payees (the “August 2008 Loan
Agreement”).  The June 2006 Notes together with the 2007 Notes,
the January 2008 Note, the May 2008 and the August 2008 Convertible Notes shall
collectively be referred to herein as, the “Notes”.

     

    Section
1. Guaranty.

     

    (a) In
consideration of Payees purchasing the Notes and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Guarantor hereby absolutely, irrevocably and unconditionally guarantees to
Payees the full payment and performance when due of any and all obligations and
undertakings of ISCO under the Notes, the Loan Agreement, and the Seventh
Amended and Restated Security Agreement (the “Security Agreement”)
entered into pursuant to the 2004 Loan Agreement, the 2006 Securities Purchase
Agreement, the 2008 Loan Agreement and the August 2008 Loan Agreement (such
obligations and undertakings shall hereinafter be referred to as the “Obligations”),
together with all reasonable attorneys' fees, disbursements and all other costs
and expenses of collections reasonably incurred by Payees in enforcing any of
such Obligations and/or this Guaranty.

     

    (b) Notwithstanding
the provisions of Section 1(a), Guarantor’s obligations hereunder shall not
exceed the maximum amount that would not be subject to avoidance under
fraudulent conveyance, fraudulent transfer, and other similar laws.

     

    Section
2. Certain
Guarantor Waivers.

     

    (a) Waivers of Notice,
Etc.  Guarantor waives notice of acceptance of this Guaranty
and notice of the creation or performance of any of the Obligations, and waives
presentment, demand of payment, protest or notice of protest, notice of dishonor
or nonperformance of any of the Obligations, suit or taking other action or
non-action by Payees, ISCO or any other guarantor against, and any other notice
to, any party liable thereon (including, without limitation,
Guarantor).  Guarantor also hereby waives any notice of default by
ISCO and any other notice to which Guarantor might otherwise be entitled, the
right to interpose any counterclaim or consolidate any other action with an
action on this Guaranty, and the benefit of any statute of limitations affecting
its liabilities hereunder or the enforcement hereof.  No act or
omission of any kind in connection with any of the foregoing shall in any way
impair or otherwise affect the legality, validity, binding effect or
enforceability of any term or provision of this Guaranty or any of the
obligations of Guarantor hereunder.

     

    (b) Guaranty Not
Affected.  Guarantor hereby covenants, agrees and consents that
Payees may, at any time and from time to time (whether or not after revocation
or termination of this Guaranty), without incurring responsibility to Guarantor,
and without impairing or releasing any of the obligations of Guarantor hereunder
and, upon or without any terms or conditions, and in whole or in part: (i) agree
with ISCO to change the manner, place or terms of performance, including
(without limitation) any change or extend the time of performance of, renew or
alter, any of the Obligations, any security therefor, or any other liability
incurred directly or indirectly in respect thereof, or to make any other change
in the Obligations, and the guaranty herein made shall apply to the Obligations
as so changed, extended, renewed or altered; (ii) take additional security, for
or sell, exchange, release, surrender, substitute, realize upon or otherwise
deal with in any manner and in any order any property by whomsoever at any time
pledged or mortgaged to secure, or howsoever securing, any of the Obligations or
any other liabilities (including any of those hereunder) incurred directly or
indirectly in respect thereof or hereof, and/or any offset thereagainst; (iii)
exercise or refrain from exercising any rights against ISCO or others
(including, without limitation, Guarantor) or otherwise act or refrain from
acting; (iv) settle or compromise any Obligation, any security therefor, or any
liability (including any of those hereunder) incurred directly or indirectly in
respect thereof or hereof, and/or subordinate the performance of all or any part
thereof to the performance of any of the Obligations (whether due or not) to
creditors of ISCO other than Payees and Guarantor; (v) apply any sums by
whomsoever paid or howsoever realized to any Obligation regardless of what
Obligations remain unperformed; (vi) cancel, compromise, modify, or waive the
provisions of any document relating to any of the Obligations; (vii) release any
other guarantor or surety of the Obligations; and (viii) grant ISCO any
indulgence as Payees may, in their sole discretion, determine.

     

    (c) Failure to Perfect Lien,
Etc.  No failure by Payees to file, record or otherwise perfect
any lien or security interest, nor any improper filing or recording, nor any
failure by Payees to insure or protect any security nor any other dealing (or
failure to deal) with any security by Payees with respect to any of the
Obligations, shall impair or release any of the obligations of Guarantor
hereunder.  No invalidity, irregularity or unenforceability of all or
any part of the Obligations or of any security therefor shall affect, impair or
be a defense to this Guaranty, and this Guaranty is a primary obligation of
Guarantor.

     

    (d) Waiver of
Subrogation.  No payment by Guarantor except the indefeasible
performance in full of the Obligations shall entitle Guarantor to be subrogated
to any of the rights of Payees.  Guarantor shall have no right of
reimbursement or indemnity whatsoever and no right of recourse to or with
respect to any assets or property of ISCO or to any security for the
Obligations, unless and until all of the Obligations have been indefeasibly
performed in full, other than as such reimbursement or indemnity rights are
waived in the next paragraph below.

     

    (e) Payment Guaranty; Waiver of
Defenses, Counterclaims, Etc.  Guarantor hereby agrees that
this Guaranty constitutes guaranty of payment, performance and compliance (and
not a guaranty of collection only), and waives any right to require that any
resort be had by Payees to ISCO or any other guarantor or to any security
pledged with respect to the performance of any of the
Obligations.  Further, this guaranty of payment is absolute and
unconditional, and shall remain valid, binding and fully enforceable
irrespective of any circumstance of any nature that might otherwise constitute a
defense, offset, claim, abatement or counterclaim that Guarantor or ISCO may
assert against Payees with respect to any of the Obligations or otherwise,
including, but not limited to, failure of consideration, fraudulent inducement,
breach of warranty, payment, statute of frauds, statute of limitations, accord
and satisfaction, and usury, and irrespective of the validity, legality, binding
effect or enforceability of the terms of any agreement or instrument relating to
any of the Obligations.  Guarantor hereby absolutely, unconditionally
and irrevocably waives any and all rights to assert any such defenses, offsets,
claims, abatements and counterclaims.  In the event Payees are not
permitted or otherwise unable (because of the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding) to accelerate the
Obligations but would otherwise be permitted to do so at such time pursuant to
the Loan Agreement, Payees may demand performance in full under this Guaranty as
if all of the Obligations had been duly accelerated, and Guarantor will not
raise, and hereby expressly waives, any claim or defense with respect to such
acceleration.

     

    Section
3. Remedies.  In
the case of any proceedings to collect any obligations of Guarantor, Guarantor
shall pay all costs and expenses of every kind for collection and enforcement of
this Guaranty, including attorneys' fees and disbursements.  Upon the
occurrence and during the continuance of any failure of any of the Obligations
to be performed when due, Payees may elect to nonjudicially or judicially
foreclose against any real or personal property security it holds for the
Obligations, or accept an assignment of any such security in lieu of foreclosure
or compromise or adjust any part of the Obligations, or make any other
accommodation with ISCO or any other guarantor, pledgor or surety, or exercise
any other remedy against ISCO or any other guarantor, pledgor or surety, or any
security, in accordance with and subject to the provisions of the documents
creating such security interests.  No such action by Payees will
release, limit or otherwise affect the obligations of Guarantor to Payees, even
if the effect of that action is to deprive Guarantor of the right to collect any
reimbursement from ISCO or any other person for any sums paid to
Payees.

     

    Section
4. Reinstatement,
Indemnification, Etc.  If claim is ever made upon Payees for
repayment, return, restoration or other recovery of any amount or amounts
received by Payees in payment or on account of any of the Obligations, and
Payees repay all or part of such amount: (a) because such payment or application
of proceeds is or may be avoided, invalidated, declared fraudulent, set aside or
determined to be void or voidable as a preferential transfer, fraudulent
conveyance, impermissible set off or a diversion of trust funds; or (b) for any
other reason, including (without limitation) by reason of (i) any judgment,
decree or order of any court or administrative body having jurisdiction over
Payees or any of their property, or (ii) any settlement or compromise of any
such claim effected by Payees with any such claimant (including ISCO); then, and
in such event, Guarantor agrees that any such judgment, decree, order,
settlement or compromise shall be binding upon Guarantor, notwithstanding any
revocation hereof or the cancellation of any Notes or other instrument or
document evidencing any of the Obligations and the obligations of Guarantor
hereunder shall continue to apply, or shall automatically (and without further
action) be reinstated if not then in effect, as case may be, and Guarantor shall
be and remain liable to Payees hereunder for the amount so repaid or recovered
to the same extent as if such amount had never originally been received by
Payees.  Guarantor hereby indemnifies Payees, and agrees to reimburse
and hold Payees harmless on demand, from and against all actions, claims,
losses, judgments, damages, amounts paid in settlement and expenses (including
reasonable attorneys' fees and court costs) brought against or incurred by
Payees and arising out of, relating to or in connection with any of the
Obligations.

     

    Section
5. Waiver of
Rights, Etc.  No delay on the part of Payees in exercising any
of their options, powers or rights, or partial or single exercise thereof, shall
constitute a waiver thereof.  No waiver of any of their rights
hereunder, and no modification or amendment of this Guaranty, shall be deemed to
be made by Payees unless the same shall be in writing, duly signed by an officer
of each Payee on behalf of such Payee, and each such waiver, if any, shall apply
only with respect to the specific instance involved, and shall in no way impair
the rights of Payees or the obligations of Guarantor to Payees in any other
respect at any other time.

     

    Section
6. Enforcement,
Etc.  Payees, in their sole discretion, may proceed to exercise
or enforce any right, power, privilege, remedy or interest that Payees may have
under this Guaranty, the Obligations or any applicable law: at law, in equity,
in rem or in any other forum available under applicable law; without notice
except as otherwise expressly required by law provided herein; without pursuing,
exhausting or otherwise exercising or enforcing any other right, power,
privilege, remedy or interest that Payees may have against or in respect of
Guarantor, the Obligations, ISCO, any other guarantor, surety, pledgor,
collateral or any other person or thing; and without regard to any act or
omission of Payees or any other person.  Each Payee may enforce this
Guaranty individually as to its portion of the Obligations.

     

    Section
7. Reliance.  Guarantor
expressly acknowledges that Guarantor has not received or relied upon any oral
or written agreements, understandings, representations or warranties from Payees
or any other party with respect to this Guaranty (or any of Guarantor's
obligations hereunder), and that this Guaranty contains the entire understanding
of the parties with respect to the subject matter hereof and supersedes and
replaces any and all prior oral or written agreements and understandings with
respect thereto.

     

    Section
8. Representations,
Warranties and Agreements of Guarantor.  Guarantor hereby makes
the following representations and warranties to Payees as of the date
hereof:

     

    (a) Organization and
Qualification.  Guarantor is a corporation, duly incorporated,
validly existing and in good standing under the laws of the State of Illinois,
with the requisite corporate power and authority to own and use its properties
and assets and to carry on its business as currently
conducted.  Guarantor has no subsidiaries.  Guarantor is
duly qualified to do business and is in good standing as a foreign corporation
in each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not, individually or
in the aggregate, (x) adversely affect the legality, validity or enforceability
of any of this Guaranty in any material respect, (y) have a material adverse
effect on the results of operations, assets, prospects, or financial condition
of Guarantor or (z) adversely impair in any material respect Guarantor's ability
to perform fully on a timely basis its obligations under this Guaranty (a “Material Adverse
Effect”).

     

    (b) Authorization;
Enforcement.  Guarantor has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by this
Guaranty, and otherwise to carry out its obligations hereunder.  The
execution and delivery of this Guaranty by Guarantor and the consummation by it
of the transactions contemplated hereby have been duly authorized by all
requisite corporate action on the part of the Guarantor.  This
Guaranty has been duly executed and delivered by Guarantor and constitutes the
valid and binding obligation of Guarantor enforceable against Guarantor in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general
application.

     

    (c) No
Conflicts.  The execution, delivery and performance of this
Guaranty by Guarantor and the consummation by Guarantor of the transactions
contemplated thereby do not and will not (i) conflict with or violate any
provision of its Articles of Incorporation or By-laws or (ii) conflict with,
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which Guarantor is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment, injunction, decree or other restriction
of any court or governmental authority to which Guarantor is subject (including
Federal and state securities laws and regulations), or by which any material
property or asset of Guarantor is bound or affected, except in the case of each
of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as could not, individually or in the
aggregate, have or result in a Material Adverse Effect.  The business
of Guarantor is not being conducted in violation of any law, ordinance or
regulation of any governmental authority, except for violations which,
individually or in the aggregate, do not have a Material Adverse
Effect.

     

    (d) Consents and
Approvals.  Guarantor is not required to obtain any consent,
waiver, authorization or order of, or make any filing or registration with, any
court or other federal, state, local or other govern-mental authority or other
person in connection with the execution, delivery and performance by Guarantor
of this Guaranty.

     

    Section
9. Successors
and Assigns.  This Guaranty is binding upon Guarantor and its
successors or assigns, and shall inure to the benefit of Payees and their
respective successors and assigns.

     

    Section
10. Modification,
Etc.  This Guaranty cannot be terminated or changed orally and
no provision hereof may be modified or waived except in writing by the holders
of 75% of the outstanding principal amount of the Notes.

     

    Section
11. Section
and Other Headings.  The Sections and other headings contained
in this Guaranty are for reference purposes only and shall not affect the
meaning or interpretation of this Guaranty.

     

    Section
12. Governing
Law.  THIS GUARANTY AND THE RIGHTS OF PAYEES AND THE
OBLIGATIONS OF GUARANTOR HEREUNDER SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW OR CHOICE 0F LAW.

     

    Section
13. Severability.  In
the event that any term or provision of this Guaranty shall be finally
determined to be superseded, invalid, illegal or otherwise unenforceable
pursuant to applicable law by a governmental authority having jurisdiction and
venue, that determination shall not impair or otherwise affect the validity,
legality or enforceability (a) by or before that authority of the remaining
terms and provisions of this Guaranty, which shall be enforced as if the
unenforceable term or provision were deleted, or (b) by or before any other
authority of any of the terms and provisions of the Guaranty.

     

    Section
14. Consent
to Jurisdiction.  Guarantor hereby irrevocably submits to the
exclusive jurisdiction and venue of any New York state and federal court located
in New York County, New York, over any action or proceeding arising out of any
dispute between Guarantor and Payees, and Guarantor further irrevocably consents
to the service of any process in any such action or proceeding by the mailing of
a copy of such process to Guarantor at the address set forth below.

     

    Section
15. Waiver of
Jury Trial, Inconvenient Forum.  GUARANTOR AND, BY
ACCEPTING THIS GUARANTY, PAYEES, HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHT EACH MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY, OR THE TRANSACTIONS
CONTEMPLATED HEREBY, AND ANY RIGHT TO OBJECT TO INCONVENIENT FORUM OR IMPROPER
VENUE IN NEW YORK COUNTY, NEW YORK.  GUARANTOR HEREBY CERTIFIES THAT
NO REPRESENTATIVE OR AGENT OF PAYEES NOR PAYEES' COUNSEL HAS

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT PAYEES WOULD NOT, IN THE EVENT OF SUCH LITIGATION,
SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL.  GUARANTOR ALSO
ACKNOWLEDGES THAT PAYEES HAVE BEEN INDUCED TO ACCEPT THIS GUARANTY BY, AMONG
OTHER THINGS, THE FOREGOING WAIVER OF TRIAL BY JURY.

     

    Dated the
18th
day of August, 2008

     

    CLARITY
COMMUNICATION SYSTEMS INC.

     

    


     

    By: /s/ Gary
Berger                                                                

     

    Address:

     

    1001
Cambridge Drive

     

    Elk Grove
Village, IL 60007